Big retailers face threat

EMBATTLED department store operators would suffer the most from a collapse in house prices as cash-conscious homeowners tightened the pursestrings, an industry report warns.

In research stress-testing the health of Australian retail against the threat of a property rout, accounting heavyweight Deloitte says discretionary re- tailers would be most exposed.

The likes of Myer and David Jones – already bracing for an assault from the impending arrival of US e-commerce titan Amazon – are considered most at risk should home prices fall by 15 per cent in the next two years.

The big department stores, especially those exposed to the inner city and other large population catchments, would be poorly insulated from a downturn in discretionary spending, Deloitte says.

It delivers the finding in its latest quarterly report on the outlook for the sector.

“Australians would suddenly have a lot less wealth. This would mostly hit discretionary retail categories, including department stores and household goods,” said Deloitte Access Economics partner and report author David Rumbens.

“Food categories would be somewhat hit, since lower employment (particularly in the construction sector) would lead to an income squeeze.”

The scenario would spark an additional 4.1 per cent fall in retail spending and 23 per cent slide in sector-wide profits on top of original forecasts to 2020, Mr Rumbens said.

If house prices hold up, Deloitte instead expects retail spending to rise 3 per cent this financial year and 2.6 per cent next. Separately, while the surge in house prices in recent years and the underlying “wealth effect” had supported retailers, the property rush had left many homeowners saddled with “eye-watering mortgages”, Mr Rumbens said.

“Servicing these higher debts will eat into retail spending capacity going forward and also create macroeconomic risks about which the Reserve Bank is increasingly becoming more vocal,” he said.

In this month’s statement on interest rates, RBA governor Philip Lowe noted growth in housing debt had outpaced that of household income, resulting in a sharp decline in the household saving ratio.

Separately, department stores could no longer lean on their former status as a “onestop shop” because shopping centres had stolen that mantle.